Consumers, Local Stations Have a Stake in Cable Retransmission Dispute

The New Year’s Eve game of “chicken” between the Fox television network and Bright House cable was a foreshadowing of a battle that will play out again and again around the country, and it could not be more important to broadcasters.

“The Fox television network and Time Warner Cable reached a programming deal in principle on Friday, after leaving millions of people in the lurch about whether they’d be able to see an anticipated college football bowl game and other shows on cable TV.

“Fox had threatened to force Time Warner Cable and another cable TV provider, Bright House Networks, to drop the Fox broadcast signal from 14 of its TV stations and half a dozen of its cable channels as a contract expired at midnight Thursday.

“But signals were extended into Friday as talks continued, allowing more than 6 million cable subscribers in New York, Los Angeles, Orlando, Fla., and other markets to tune into the Sugar Bowl and other programming.”

What is this about?

TV stations have two main revenue streams, advertising and cable retransmission fees. Some have side deals in which they produce newscasts for other stations. Some make a little money on production. But mainly, commercials pay the bills.

Stations want the retransmission fees to become a more significant source of income as advertising becomes a less reliable breadwinner.

Fox has been asking Bright House for a dollar per cable subscriber per month, and it threatened to pull the signal from the cable systems if it didn’t get paid. (By way of comparison, ESPN makes about $4 per subscriber.) Keep in mind, there are more than 100 million cable subscribers in the United States. Bright House is the nation’s second-largest cable provider, so any deals it makes will color future deals with other companies.

“Currently, most local broadcast TV stations receive 25 to 50 cents per subscriber from cable companies for retransmission rights.

“Even more common are arrangements where broadcast networks allow cable systems to retransmit their programming in exchange for paying for several of their cable-only channels — for example, NBC lets cable systems carry their broadcast network at no charge if they also pay for MSNBC, CNBC and The Weather Channel.”

“In 2008, broadcast stations garnered slightly more than $500 million in retransmission cash from cable, satellite and telecommunications operators; SNL Kagan expects those fees to rise to $1.2 billion by 2011.

“But broadcasters aren’t stopping there. They’re also asking their affiliates (the independently owned stations throughout the country with which they’ve struck deals to carry their fare for a significant portion of the day) to pony up a portion of their retransmission fees. The networks’ argument: They deserve the lion’s share of any compensation because they’re the ones supplying the sort of must-watch fare (think ‘NCIS,’ ‘Desperate Housewives’ and ‘Sunday Night Football’) that draws eyeballs and big fees.

” ‘Any way you look at it, there should be a sharing,’ CBS Chief Leslie Moonves said at an investor conference” in December.”

Bright House said that when it pays more for retransmission, it will charge more for cable. Customers will foot the bill.

“The parent of cable networks ESPN and Disney Channel as well as broadcast network ABC said in a statement to Company Town that ‘cable operators pay only about 25 dollars a month for all of the programming on the basic and expanded basic tiers, and they sell this to consumers for some $60 to $70.’ “

Local stations have not always received cash for retransmission. A decade ago, cable companies were willing to give stations a better channel position on cable or even offer stations or station groups extra channels in exchange for retransmission. On SeekingAlpha.com, media executive Joseph Patrick Hannan explained how retransmission deals once worked:

“In the past, it may have had a monetary component to it, but more often provided the broadcaster better or additional channel positions and other promotional consideration for the right to redistribute their signals.

“Both create a no-lose situation for local broadcasters in expanding their reach beyond the over the air signal, but retransmission consent heavily rewards broadcasters who invest in quality news operations, syndicated programming and network affiliations that consumers desire.

“Rupert Murdoch was known to use retransmission consent to his fullest advantage in the 1990′s. News Corp. capitalized heavily on the strength of the Fox Network and its owned and operated television stations to secure national carriage for many of the then fledgling cable networks that are now highly profitable franchises for that company. EW Scripps Co. is another company that used this strategy to create lucrative national cable networks on the backs of its television station group.

“Others, such as Belo Corp. used the negotiating leverage of their station groups to launch local and regional news networks on cable systems. Cable operators were willing to provide additional channel capacity then as they wanted to ensure they continued to offer such things as local news and sporting events, but did not want to pay-out rights fees to do so.

“In addition, capacity was not as constrained or as valuable as it would become, hence the concessions were made. However, cable positions did eventually [become] much more in-demand with the proliferation of niche cable networks on both the analog and digital tiers of their systems, and cable operators significantly curtailed this practice. The introduction of satellite television as a formidable competitor forced the cable companies to revisit their stance on retransmission consent, though.

“The likes of Dish and DirecTV began aggressively seeking new ways to offer differentiated content, and broadcasters eventually persuaded regulators to mandate certain retransmission rights on satellite as well. This put many broadcasters in an enviable position, and finally gave them significant leverage to demand cash payments from the cable companies in the retransmission consent process.”